On Monday, B.Riley adjusted its outlook on Golden Entertainment (NASDAQ:GDEN), decreasing the company's price target from $44.00 to $40.00, while still affirming a Buy rating on the stock. The revision was prompted by a series of factors that are affecting the company's earnings before interest, taxes, depreciation, and amortization (EBITDA) projections for the years 2024 and 2025.
The firm cited the unusually prolonged summer heat in Las Vegas as a significant factor, which has affected both local residents and the tavern business. Additionally, lower expectations for the Laughlin market and persistent weakness in the lower end of Golden Entertainment's customer database were noted as contributing reasons for the adjustment.
The updated estimates for the company's EBITDA in 2024 are now 3% below the consensus, while the projections for 2025 are relatively aligned with current expectations. The firm anticipates an 8% growth in EBITDA for 2025, which they consider might be a conservative estimate.
The report also suggests that Golden Entertainment is expected to continue its share repurchase program, likely using up the remaining $61 million allocated for this purpose before the year's end. The reduction in the price target to $40 is attributed to the new EBITDA estimates. However, it's worth noting that the target is based on an 8.5x one-year forward EBITDA valuation, which is compared to Golden Entertainment’s historical average of 9x, the current average of its peers at 8.6x, and its 9/20/2024 enterprise value/EBITDA closing valuation of 6.9x.
In other recent news, Golden Entertainment has disclosed mixed results in its Q2 2024 earnings report. The company's revenues reached $167 million with an EBITDA of $41 million. Despite a slight decline in total property revenue and consolidated EBITDA, the STRAT, a key property of Golden Entertainment, recorded record hotel revenues for the quarter. Challenges were noted in the company's Laughlin operations and Nevada Locals Casinos, but optimism was expressed regarding the tavern business and upcoming events.
Golden Entertainment has repaid over $750 million of debt since early 2021, and net leverage is below 2x. The company plans share repurchases and anticipates benefits from the F1 event and other strategic initiatives. It aims to improve midweek occupancy, which is still below 2019 levels by nearly 18%.
While the Nevada Locals Casinos saw a decrease in visitation and spending from lower-tier customers, the STRAT's increased hotel revenue indicates a strong performance in the hospitality segment. The company is also focusing on reducing reliance on OTAs, with direct bookings increasing.
InvestingPro Insights
In light of B.Riley's revised outlook for Golden Entertainment, current data from InvestingPro provides additional context for investors considering GDEN's stock. Notably, the company's aggressive share buyback strategy underscores management's confidence in the stock, as highlighted by one of the InvestingPro Tips. Additionally, Golden Entertainment is trading at a low earnings multiple, with a P/E ratio of just 3.33, suggesting potential undervaluation relative to earnings.
From a financial standpoint, Golden Entertainment's market capitalization stands at $888.23 million, and despite a notable revenue decline over the last twelve months as of Q2 2024, the company has maintained a gross profit margin of 47.72%. These figures, combined with an attractive dividend yield of 3.19%, may appeal to income-focused investors. However, analysts are projecting a sales decline and a drop in net income for the current year, which could be points of concern.
For investors seeking further insights, there are additional InvestingPro Tips available that delve deeper into Golden Entertainment's financial health and market performance. These tips include analysis on stock price volatility, short-term liquidity, profitability forecasts, and historical returns. Access to these comprehensive tips can be found at the dedicated InvestingPro page for GDEN.
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